Commentary and musings on the complex, fascinating and peculiar world that is securities regulation

Saturday, April 12, 2014

South Carolina and 20 Other States Ask Supreme Court to Allow Asset Discovery in Argentina Bond Case

In a case involving the assets of the Republic of Argentina being subject to creditors, the State of South Carolina and 20 other states urged the U.S. Supreme Court to reject the argument that foreign sovereigns are not subject to post-judgment discovery under FRCP 69 despite a prior waiver of sovereign immunity unless the creditor identifies the assets in advance. In their amicus brief, the states argued that requiring creditors to identify assets available to satisfy a judgment before obtaining discovery would effectively deprive them of any realistic opportunity to conduct asset discovery. Doing so would unduly impede enforcement of foreign sovereign debt obligations and further encourage sovereign debtors to remove attachable assets from the United States. Thus, the states asked the Court to protect the bargained-for rights of investors in foreign sovereign debt by holding that the Foreign Sovereign Immunities Act (FSIA) does not limit post-judgment asset discovery under Rule 69. The Court is reviewing a Second Circuit ruling that post-judgment discovery in aid of enforcing a judgment against a foreign state can be ordered with respect to all assets of a foreign state regardless of their location or use. Oral argument is set for April 21. Republic of Argentina v. NML Capital Ltd, Dkt. No. 12-842. Amici are States that have invested billions of dollars in foreign sovereign debt through their public pension funds. Those investments will be seriously jeopardized and State budgets may be severely impacted as a result if the Court accepts the proposition urged by the Republic of Argentina that foreign sovereigns may attract investors with the false promise that their debts will be enforceable in U.S. courts, only to change the rules and thwart enforcement when it comes time to collect on those debts. By waiving sovereign immunity, the foreign sovereign agrees to subject itself to judicial process in a U.S. court, pursuant to the Federal Rules of Civil Procedure. That includes post-judgment discovery under Rule 69. Many foreign sovereigns, particularly those with emerging economies or troubled financial pasts, are able to access affordable capital from U.S. investors, only if they agree to waive sovereign immunity and thereby allow their debts to be enforced in a U.S. court. That is precisely what the Republic of Argentina did here, said amici.